Canadian environmentalists hailed the announcement as evidence that provincial leaders were losing faith in Ottawa's stand on climate change, but federal Environment Minister John Baird said he saw no problem with Ontario's decision.

The WCI, which has set a target of cutting greenhouse gas emissions to 15 percent below 2005 levels by 2020, is expected to unveil its plan for capping carbon emissions and trading offset credits next month.

Ontario Premier Dalton McGuinty has been a strong critic of Ottawa's plans to fight climate change, and said at a meeting of premiers in Quebec City on Friday that people were tired of waiting for action.

"Of course there is a system put in place by the federal government, but obviously that doesn't satisfy all Canadians so we see provinces making their own efforts to assume their responsibilities as global citizens," McGuinty said, speaking in French.

The province of Quebec is a member of the WCI along with British Columbia and Manitoba. The US states involved are California, Arizona, Montana, New Mexico, Oregon, Utah and Washington. Several other US and Mexican states hold observer status with the group.

"Ontario is doing some great things to combat global warming, and I welcome them, said California Governor Arnold Schwarzenegger, who has spearheaded the WCI efforts in the United States.

British Columbia Premier Gordon Campbell said Ontario's move was important because it meant that provinces with two-thirds of Canada's population and that were responsible for 73 percent of the country's GDP were now part of the WCI.

A key difference between the WCI and the Canadian government's plan is how emissions would be capped. The group wants a "hard" target for capping total emissions, while Ottawa backs "intensity based" targets, which measure emissions as a percentage of production.

Environmentalist say Ottawa's approach would actually allow emissions to continue increasing, and would not let the market establish a true price on carbon that would be needed for a credit trading system to work.

Baird said the federal government's policies will produce an absolute reduction in emissions of 20 percent by 2020, and said Ottawa was willing to work with the provinces to see how WCI efforts fit within its environmental framework.

"One of the challenges is that there is not a consensus among the provinces on what action to take to fight global warming," Baird told Reuters.

Alberta, home to the oil sands, Canada's single largest source of greenhouse gases and a key source of energy to the United States, has rejected being part of any cap and trade system. (Reporting by Allan Dowd, David Ljunggren, Louis Egan, Timothy Gardner. Writing by Allan Dowd, editing by Rob Wilson)